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Bank of Canada Governor Stephen Poloz is seen during an interest rate announcement in Ottawa, Wednesday October 19, 2016.

Adrian Wyld/The Canadian Press

Where the hell is Wallonia? More than a few Canadians might have asked that question this week. The parliament that governs a slice of Belgium that accounts for a fraction of 1 per cent of the population of the European Union has just scuppered a free-trade agreement between Canada and Europe.

It's not the tail but the flea that is wagging the dog. Wallonia is kicking up a fuss over CETA, the Comprehensive Economic and Trade Agreement. Walloon farmers worry they will lose protection from cheap imports while Walloon industrial workers fear the deal offers too much freedom for multinationals. Canadians who, in common with their Prime Minister, like to see themselves as the global "Mr. Nice Guy" may be surprised to find themselves cast in the role of rapacious and predatory capitalist exploiters.

We should not be too offended; there is a lot of this protectionist stuff going around. It's not just Donald Trump promising to build walls to protect American jobs or even Britain voting to leave the world's biggest free-trade zone. According to the World Trade Organization, since 2008, the G20 nations have introduced 1,583 trade-restricting measures and removed only 387.

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For several decades, trade was widely regarded as the engine of economic and social progress. "Trade, not aid" became a slogan adopted by both libertarian and left-leaning economists. But the political fallout from the financial crash spread far beyond the banking sector. Free trade and its bedfellow, globalization, have become unfashionable and the trend is hurting Canada.

The evidence was unveiled this week by Bank of Canada Governor Stephen Poloz, when he delivered a gloomy prognosis for the Canadian economy, which is being stymied by poor export performance. The bank's expectation that the push from a weak currency and the pull from the American recovery would create a surge in Canadian exports has been dashed. The outcome is that the bank has cut a full percentage point from the anticipated growth of Canadian exports in each of the next two years, and Mr. Poloz hinted that the adjustment to the bank's forecasts of export growth may be permanent.

What had been thought to be a cyclical downturn explained by weak commodity prices is now thought to be something worse, something about the way trade is not working the way it used to. The bank is struggling to explain what is going on with Canadian exporters and Mr. Poloz cited some domestic concerns, such as weak infrastructure, high energy costs, lost export capacity and a general lack of competitiveness, but it is clear that something is clogging up the hidden machinery of global trade.

The world is turning inward. Growth in global trade is rapidly decelerating. The WTO expects the volume of imports and exports to expand by only 1.7 per cent this year, compared with rates of 7 per cent or more in the years prior to the financial crash. Where there was once a rule of thumb that global trade expanded at twice the rate of growth in the world's economy, we are now seeing trade barely matching or even lagging economic growth.

Those high rates of trade growth during the 1990s and the first decade of the 21st century may have been exceptional and related to the collapse of communism in Russia and China. The frantic industrialization of the Asian nation created a global industry of logistics and the fragmentation of vertical industrial-production chains. Where early-20th-century manufacturers built entire industries, with steel making cheek-by-jowl with metal fabrication, which was next door to assembly, we now think it's normal to move components and materials back and forth across oceans.

But this structure, driven by surplus labour pools in China, is rapidly becoming redundant. Automation and robotics makes the cost of labour less critical to the profit margin. What will matter more for businesses in the global economy of the future is access to the best technology and know-how.

Nationalism is on the rise everywhere, and with nationalism comes protectionism. It's not just Donald Trump and his walls or the cursed insularity of the Walloons. It is creeping into establishment politics in otherwise sophisticated nations. Consider Britain, where the Prime Minister, Theresa May, has made it clear that her government will not accept any new arrangement, following the country's exit from the European Union, that allows free movement of EU citizens into the U.K.

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Conservative libertarians who thought Brexit was all about getting rid of the extra government layer in Brussels are now horrified to discover that it's about keeping out foreigners. In a recent speech, Ms. May gave warning to globalizers, whether human or corporate. "If you believe you're a citizen of the world, you're a citizen of nowhere. You don't understand what the very word 'citizenship' means."

If Stephen Poloz really wants to know what is slowing down trade for Canadian exporters, he need not bother delving into statistics about industrial capacity and energy efficiency. He should listen to what the world's political leaders are saying and hear the protectionist signals, the "them" and "us" rhetoric. The outbreak of ugly nationalism is bad for trade and it bodes ill for a smooth transition from trade in things to a world of trade in knowledge, skills and services. It is bad for rich countries and it is bad for poor countries and it is bad for Canada.

Carl Mortished is a Canadian financial journalist based in London.

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